Reddit Shares Face Sustained Selling Pressure Despite Strong Results

Reddit's stock has opened the 2026 trading year on a weak note, shedding between 35% and 40% of its value since January. This decline persists even as the company reported robust financial performance for the full year 2025. With the initial market reaction to the earnings report now subsiding, investor scrutiny is shifting toward the company's capital allocation strategy and the long-term viability of its artificial intelligence-fueled expansion.

The current landscape of analyst opinions reveals a significant divergence in expectations for Reddit's equity value. While the shares have recently traded in a range of $129 to $141, several institutions maintain a far more bullish outlook. Needham recently reaffirmed a $300 price target, citing fundamental metrics such as the company's impressive gross margin of 91.9%.

In contrast, JPMorgan reduced its target to $200, though it retained a constructive rating on the stock. The substantial gap between present trading levels and these analyst projections suggests continued volatility is likely until the market reaches a clearer agreement on the stock's fair value.

A Billion-Dollar Buyback Authorization Enters the Spotlight

A key development for the coming weeks is the execution of a newly approved capital return initiative. Following the Q4 report, Reddit's board authorized a share repurchase program worth up to $1 billion. Market participants are closely watching how aggressively the company will deploy this authorization in light of the recent share price correction.

Reddit concluded 2025 with a strong cash position of approximately $2.48 billion, providing ample liquidity to support the stock through market purchases. The timing and scale of these buybacks are now viewed as critical variables that could signal a potential bottoming pattern for the shares.

Should investors sell immediately? Or is it worth buying Reddit?

Sustainability of AI-Driven Ad Growth Under Microscope

The durability of Reddit's advertising revenue surge represents another pivotal factor for its future valuation. In the fourth quarter of 2025, advertising revenue jumped 75% year-over-year to $690 million. Company leadership attributes this significant growth largely to AI-powered tools like "Reddit Max," which have enhanced conversion rates for advertising clients.

The crucial question for upcoming quarters is whether these efficiency gains are sustainable. Investors are seeking evidence that the rollout of automated bidding and AI-driven ad placements constitutes a permanent structural improvement rather than a temporary boost. Furthermore, the expansion of features like "Reddit Answers" into new languages indicates an ongoing strategy to leverage AI for increasing user engagement and search traffic.

Planned Reduction in User Metric Transparency Noted

Longer-term investors must also factor in a planned change to the company's reporting methodology. Management intends to cease providing detailed breakdowns of user numbers by login status starting at the end of 2026. This reduction in granular data is expected to make precise analysis of monetization across different user segments more challenging going forward.

In the near term, stabilization of the share price is seen as heavily dependent on the pace of the stock repurchase program. Concurrently, Reddit's quarterly reports throughout 2026 will need to demonstrate that its AI tools can consistently maintain the high growth momentum within the advertising segment.